Hundi System in Medieval India: Perspectives from Economic History

Hundis in Medieval India were financial instruments that were used for remittance across distant places. In this paper, I compile the narratives provided by South Asian historians about the hundi system and re-examine the historical evidence in light of theories from institutional economics and economic history. A key insight in institutional economics is that, in the absence of a formal legal regime for contract enforcement, social norms provide protections for contracting parties in complex economic exchanges. I explore how the societal and cultural pressures affected the workings of the sarrafs - the issuers of the hundis, and ensured that sarrafs would not dishonour hundi contracts or overcharge their clients. Finally, the paper also provides a framework for further studies to compare similar instruments across time and space. I have used the method of analytic narratives to provide an economic history perspective to the historical narratives available. The insights from this paper could be used to examine the arguments of 'The Great Divergence' - inclduing the ones that argue for the superior mobility of capital in Europe during the medieval period.